photo credit: idle_a_while
Sometimes we forget that an entire industry revolves around a very basic technique: valuing property.
From Commercial Real Estate Analysis stems Commercial Real Estate Investors, REITS, Commercial Real Estate Agents, Brokerage Firms, etc.
When considering the lure of the Commercial Real Estate Industry, that sizeable transaction fee, the large scale property ownership and coinciding rents, whether purchaser or transactioneer, all too often we’ll skip ahead and forget our foundation: Commercial Real Estate Analysis.
So here’s a reminder, an ode to that ancient technique that brought us here, Commercial Real Estate Analysis.
Step back almost four thousand years to the Ten Commandments, an original champion of private property. Thou Shalt not Steal, is not only moral but implicative, implicative of private property. As it’s not always been the case, and due a number of influential voices, most notably Aristotle’s Politics, our entire professional careers, and many of our lives’ ambitions, are owed to a disputed philosophy.
However, in every instance of accepted private property law, the next step is a very artificial process called property valuation. It’s a human creation. It’s not necessarily natural, but neither is clothing, and sometimes it seems to make sense.
Some consider property valuation a science. It’s not, unless the science consists of best practice assumptions. Property valuation is often a designed method of fortune telling. However, as noted by the age of the Ten Commandments, the process has been evolving for a very long time.
So what advantage is there in proper Commercial Real Estate Analysis?
All the advantage. And that’s the truth. Akin to statistics and accounting, Commercial Real Estate Analysis can be one of the most manipulated branches of mathematics. You can play by the rules and achieve nearly any result you’re looking for simply because you’re justifying assumptions.
From here forward, it’s your choice, you may use the advice for good, or wander over to the dark side.
If you possess basic property valuation knowledge, it means you’ve performed analysis yourself. It means you’ve been stumped on a proper discount rate, market leasing assumption, vacancy rate, inflation, income growth, analysis period, etc. You’ve been stumped because there is no ‘proper’ anything, because it’s always subject to change and it’s always an assumption.
Your general economic outlook is a major factor in determining your assumptions, and if you’ve ever watched the news, you’d realize there are certain advocates on either side, each encouraging you to either end the world or prepare for the great economic expansion across worlds.
So here’s the dark side: your expert understanding of Commercial Real Estate Analysis affords you the option of predetermining a price. If you want a higher price, a slight manipulation of discount rates downward, and a coinciding drop of general market vacancies should do the trick, of numerous possibilities.
However, if you’re here for the right reasons, your Commercial Real Estate Analysis know-how can protect you from sizable discrepancies in property value, because you understand what inputs led to the final output, and you understand what general principles should dictate those assumptions. And it’s not that hard. And there is a better way of doing it.
We’ve made it easy here at REsheets to start from any level, to become your own financial Guru just by practice. We encourage you to further your career by developing yourself, check out our Commercial Real Estate Analysis Products, and if you have any questions, or even pricing concerns, please contact us, and we’ll be sure to work with you (in the interest of good).